Individually-Designed SEP

[jpod]

Can you have a SEP with alternative eligibilty requirements? For example, an employee is eligible to participate if EITHER -

(a) the employee has performed services for the employer in 3 out of the preceding 5 years, OR

(b) the employee is hired on a full time basis (40 hours per week), other than on a temporary basis.

Alternative (a) satisfies 408(k). Does alternative (b) cause a problem?

The goal is to exclude interns and other temps.

[ETA Consulting LLC]

No. A SEP is a cookie-cutter arrangement; void of that level of flexibility.

Good Luck!

[jpod]

ERISAtoolkit: My question is, if your eligibility rule satisfies the 3-out-of-5 rule, can you have an enhanced alternative eligibility rule? Do you have a citation for your "cookie-cutter" answer?

[PensionPro]

You can have less restrictive eligibility requirements than the 3-of-5 so you should be fine. But you can not exclude employees who have worked 3-of-5.

[masteff]

Agree w/ PensionPro, because of the word "OR", it will occur no later than required by statute. Note that 408(k)(2)(B) uses the qualifier "at least".

[jpod]

I have another question for an individiully-designed SEP.

Can you use ANY 414(s) definition of compensation for purposes of allocating contributions? Specifically, can you use a definition that excludes bonuses provided that the 414(s) nondiscrimination test is satisfied? While 408(k)(3) has the words "total compensation" in its title, I think that's just a legislative drafting typo because the text of (k)(3) was revised in 1988 to remove the word "total" and 408(k)(7) defines "compensation" to mean a 414(s) definition. Any thoughts?

[masteff]

408(k)(7) starts w/ the statment "For purposes of this subsection and subsection (l)". So the definition of comp in 408(k)(7)(B) (i.e. 414(s)) is what I would use. I wouldn't over construe "total compensation" in (k)(3)© because that term is used in the header of the paragraph and occurs nowhere else in Section 408.